BoC left its policy rate unchanged at 2.75% as expected, but opened the door to future easing. In its statement, the central bank noted that if economic weakness continues to weigh on inflation and upward pressures from trade disruptions are contained, “there may be a need for a reduction in the policy interest rate.”
The Canadian economy is reeling from recent U.S. tariffs. After a strong Q1, likely driven by pre-emptive export surges, GDP is projected to have shrunk -1.5% in Q2. The BoC sees a modest rebound in H2, forecasting 1% growth under the current trade conditions. But the path ahead diverges sharply depending on whether the trade standoff worsens or eases. A tariff escalation scenario would seen the Canadian economy “contracts through the rest of this year”.
Inflation is expected to remain close to 2% in the current tariff scenario. While de-escalation could ease price pressures, higher tariffs and rising supply-chain costs pose upside risks. Businesses are already reporting increased expenses as they adjust sourcing strategies—raising the potential for broader consumer price impacts.
